Disys to raise $20M to fuel acquisitions

Disys Corp., a McLean-based information technology staffing and consulting company, is in late-stage negotiations to raise a $20 million private equity round that would fuel acquisitions, according to CEO Mahfuz Ahmed.

The company plans to scout out targets “that have a complementary client base,” Ahmed said. He declined to identify the investor in the possible deal, which would be the first for Disys.

Ahmed, the company’s chief stockholder, said none of the proceeds from a potential financing would go toward buying back stock from existing shareholders, which is frequently the case in private equity deals.

“If I bring private equity in, I’m not really cashing out any of my chips,” he said. “What we’re doing is we’re loading up so we can buy others.”

Disys announced in April it had snapped up the assets of Conversion Services International Inc., a Hanover, N.J.-based tech consulting company. Conversion Services, which had gone out of business at that point, had put up those assets as collateral for a loan.

The possible financing comes amid a period of intense, though slowing, growth for Disys. The company is on track to hit about $300 million in global revenue this year, Ahmed said, up from $250 million in 2011.

Disys, whose client base is chiefly Fortune 500 companies, books business about a year in advance. And its IT business growth “did take a bit of a hit” over the last two quarters.

“We have some road to make up, given the fact that the industry probably is going to be flat-lining this year, or maybe grow at 2 to 3 percent,” he said.

IDisys was far from the only one of its peers to see a soft first half of 2012. Globally, the number of outsourcing transactions fell markedly in both the first and second quarters, compared with the same periods last year, according to data provided by Eric Simonson, managing partner of research for Dallas-based Everest Group. Those quarters saw 441 and 411 transactions, respectively, compared with 508 and 516 transactions in the first and second quarters of 2011.

The figures cover only publicly disclosed deals, which represent about 30 to 40 percent of the market but nevertheless provide “a good sample to correlate to the broader trend,” Simonson said.

Both contract labor and outsourcing budgets are more at the mercy of economic uncertainty than full-time staff, he added. Discretionary IT projects, those outside of things like compliance work and running and maintaining servers, are most likely to use outside staffing.

“The ups and downs, the variations in demand — that’s where more people are trying to use external resources,” Simonson said. “That’s the first place to cut, and that’s the first place to add.”

In Disys’ case, Ahmed believes the slowdown stems from the replacement cycle in corporate IT systems. Purse strings have tightened after heavy spending that began in the latter half of 2009.

“This year, what we have seen from a lot of our clients is that if they don’t need to spend the money, they’re not spending the money,” Ahmed said.

Disys maintains offices worldwide, with a large concentration in the U.S., South America and Southeast Asia. In an effort to boost hiring domestically while holding down costs, the company hatched a plan last year to set up offices in cheaper communities near Virginia universities and hire recent graduates.

The strategy, Disys executives said, would allow the company to match Indian outsourcing rivals like Mumbai-based Tata Consultancy Services and Bangalore-based Wipro Technologies without resorting to offshoring.

Ahmed has since abandoned that plan. After shopping it around to clients, “the financials did not make sense,” he said. “When they compared it to offshoring, we still couldn’t match the price.”

He offers this example: In India, Ahmed can hire certain software application testers for about $13 or $14 an hour. Even outside of the metropolitan centers, someone with that skill set would be tough to find at $20 per hour, he said.